Gold medallions: think again

May 6 2012 at 12:05pm
By Bruce Cameron

Gold has provided some astute investors with quite fantastic returns over the past few years, with the price soaring from US$400 (R3 000) an ounce in 2004 to about US$1 650 now. And some equally astute business people have used the price rise to exploit South Africans’ love affair with gold by producing gold medallions (note: not gold coins).

My eye was caught recently by yet another gold medallion being incorrectly marketed as a coin – namely, one that commemorates the sinking of the Titanic.

What worries me about owning this “piece of maritime history” is that its value could well sink faster than the “unsinkable” ship.

When I checked, the Titanic medallion had the equivalent amount of gold as a quarter-ounce Krugerrand, and it was selling for R9 950. On the same day, you could buy a quarter-ounce Krugerrand for about R3 800.

Gold is pretty well at an all-time high, and predictions that the price is not sustainable are starting to come in strong and fast.

To me, gold has always been a bit of a non-starter as an investment. First, it does not provide a return, apart from a capital gain – which could quite easily be a loss.

Normally, the price drifts along. The price, or gold fix, is not set by an open-market system but by a committee representing five banks.

In my working life, the price of gold has surged twice (in 1980 and now) and has fallen back once.

If the gold market is unappealing most of the time, trade in gold medallions is even more risky, in my opinion. If you are planning to invest in gold coins, you need to consider a few things:

* A gold coin is a recognised currency and its price is fairly close to its metal content. A Krugerrand is a gold coin. The margin between the buying and the selling price is fairly narrow, and you do not pay VAT on the purchase of a gold coin.

* A gold medallion is not a currency; it is an artefact with gold content on which you pay VAT. The launch price is likely to be about three times the price of the metal content of the medallion. The margin between the buying and the selling price can be very wide. The buying and the selling prices can be expected to move, to some extent, in tandem with the gold price.

* The medallion producers set the value: there is no transparent open market.

An in-depth analysis of gold medallions was published in the first-quarter 2012 issue of Personal Finance magazine, and it is well worth reading (link at the end of this article).

If you want to invest in gold, you should consider buying a gold exchange traded fund, Krugerrands or a gold bar, which have a value more closely aligned to that of gold.

On the subject of exercising caution, members of the South African Airways (SAA) frequent flyer programme should be very wary about the value they receive.

Last year, Personal Finance published an exposé of the poor value offered by SAA’s frequent flyer programme, particularly when used in conjunction with the Nedbank/SAA credit card. (The URL of the article, “‘Free’ flights aren’t cheap”, which is on our website, is at the end of this article.)

Recently, I received a complaint about another problem with SAA’s frequent flyer programme: namely, the “airport taxes” you have to pay if you take advantage of SAA’s “free” Voyager tickets.

My informant was involved in flying four people from the United States to South Africa last year. He paid for two tickets using Voyager (Star Alliance) miles, and they paid for two tickets using Continental (Star Alliance) miles. Same day, same flights, same airports, but Continental charged US$75 a ticket for airport taxes, whereas SAA charged US$448 a ticket!